September 1, 2008
Realtor Caroline Caira has often brought gifts - usually department store gift cards or restaurant certificates - for new homeowners. But her latest promotion takes the bait.
"I just brought haddock to a closing," said Caira, who works out of the RE/MAX First Realty office in Watertown. "People like seafood."
Caira's fiance, Domenic Vincenzino, owns the Newton fish store Steamers, where she gets her fish. And her new deal offers anyone who buys or sells their house with her free fish for a year.
It isn't so much a reaction to the economy as a partnership to support local business, she said. Vincenzino talks up her real-estate business to customers and features her business cards at the counter advertising the fish promotion. Meanwhile, she talks tilapia to anyone who will listen.
"There's no real gimmick," she said, noting that the amount of free fish depends on the amount the house sells for. "If it's a $500,000 house, we'll give you $500 worth of fish."
Caira, who has also served lobster rolls at broker open houses, is one of a select few who go beyond traditional promotions that typically feature free calendars. Another local broker, Naomi Zygiel-Almozlino from Coldwell Banker in Newton, recently sent out a food and wine pairing list to potential clients. Serve sharp cheese with a pinot noir or cabernet sauvignon, it suggests. But mild cheeses go better with sauvignon blanc.
No one may enjoy incentive marketing more than Ron Phipps of Phipps Realty. The Warwick, R.I.-based agent said he's done plenty of unusual, even funny promotions during his 20-year career.
"Some things work. Some things don't. It will cause them to smile, but it won't make or break a sale," he said.
Thoughtful gifts have included a Douglas fir to a family relocating from the West Coast and bougainvillea for a buyer from Atlanta. He tempted buyers of a waterfront property with a sailboat and offered a professional closet-planning service to a home ripe for a build-out. While jewelry and fur coats are not uncommon gifts in the South, Phipps said they would never work in New England.
Instead, he has plied open-house guests with the latest Harry Potter [website] title and pints of Ben & Jerry's ice cream.
Phipps is careful not to offer anything that might draw attention to a weakness of a house and admitted that some perks turned out to be problems.
"Once I gave a gift certificate to go fishing," he recalled. "The seas were rough and everyone got sick."
These days, Phipps has scaled back, saying that buyers don't want extras in a tight economy. They just want a well-priced house.
"It's better to price the house where it's going to be in 90 days, and sell it now," he said. "We've reduced incentives and recommend all those resources go into the selling."
But in Newton, Caira enjoys the friendly conversation that her free-fish-for-a-year deal has prompted. Customers joke, "I'll eat you out of business."
"Well," she said. "Restrictions do apply."
Jill Radsken- jradsken@bostonherald.com
It's no secret that the days of houses selling like Beanie Babies are over. After real estate appreciated at jaw-dropping rates during the first half of the decade, home prices and sales tallies have dropped precipitously in recent months—tilting market dynamics to favor buyers over sellers. That doesn't mean your house won't sell, just that the playing field has changed. So here are five tips to help you get a timely sale at a fair price in today's reshuffled housing market.
By setting an asking price above market value, homeowners risk driving potential buyers away. "People think, 'Well, I'll run it up the flag pole at [an above-market] price, and people will come along and make a [lower] offer. That is not really happening in this market," says Elizabeth Blakeslee of Coldwell Banker Residential Brokerage in Washington, D.C. "If people perceive your property is being overpriced, they will just move on to the next." Lowering the price may be difficult, but if you want to sell your home in today's market, grit your teeth and do it. "There is a buyer for every property if the pricing is right," says Lenn Harley, a broker at Homefinders.com.
1. There are more homes for sale than there are people buying. Home sales declined 23.4% from January 2007 to January 2008, according to the National Association of Realtors. Sales slowed most in the Western region, with a decline of 28.5%.
The slide has continued month-over-month this year, even as prices continue to fall, and The National Association of Home Builders reports a 10-month supply of new homes on the market, compared with a 4.5 month supply in 2005. Turn on any news show and the pundits are summing it up: Home buyers remain wary.
2. Sellers are turning to incentives. In February, 55% of builders surveyed by the NAHB said they were adding optional items at no charge, compared with 37% in 2002. And 43% said in February that they were paying all or some of the buyers' closing costs.
Jessie Beaudoin, a mortgage broker with American Financial Network, says that he can't track incentives precisely but that in California he sees 60% to 70% of sellers now paying some of the buyer's costs. "The lenders and the real-estate community are encouraging this," he says. "Nobody right now expects to pay full price for any property."
Most bank foreclosure homes and corporate relocation houses are also offering financial incentives, says Ron Phipps, a Rhode Island broker.
3. Buyers need to put cash down. Lenders have reined in those fully financed loans that helped trigger the mortgage collapse. Banks now demand not only better evidence that buyers can make the monthly payments but also that they have a financial stake in the property from the outset through bigger down payments.
In 1989, the median down payment was 20%, says the NAR, and mortgage brokers have reported that institutions are inching back toward such heftier requirements.
Even buyers who qualify for a low 3% down payment with an FHA loan still need to come up with closing costs, which add another 3% to 6% of the home's price.
4. Many home buyers are first-time buyers. Without home equity to tap into, first-time buyers often have difficulty securing a large amount of cash. "First-time buyers can handle the monthly payments; it's coming up with the down payment and closing costs that's hard," says Walter Molony of the NAR.
First-time buyers comprise nearly 40% of the market, he says. Of those, 22% receive a gift from a friend or relative to cover some or all of those costs, and 7% use a personal loan.
Forget the gimmicks
Add these four factors, say the experts, and you get a strong case for offering prospective buyers financial incentives. But forget about the Final Four tickets. Instead, help soften the financial blow associated with a new home.
"That's the time when (buyers) have the least amount of money in their pockets," says Stephen Melman, director of the NAHB's economic services. "They're buying. They're going to closing. They might have moving costs. They're going to have to buy furniture. Anything that helps their cash flow is going to be great."
It's more true now than in recent years, say brokers.
Phipps, a broker with Phipps Realty in Rhode Island, has been offering creative incentives for years. Goods or services associated with the house – a trip to wine country to stock the new cellar, for instance – have always piqued interest. But today's buyers are savvy, he says. They're analyzing price data and aren't distracted "by things that seem like gimmicks."
"Awhile ago (the incentives) were fun, but the nature of the real estate market is more serious now," Phipps says. "Buyers react to those incentives or encouragements that impact their bottom line."
Here are some ways to offer financial incentives:
Pay closing costs
Closing costs include title, application and attorneys fees, and points paid toward the loan's interest rate. They typically range from 3% to 5% of a home's cost. The median price of a home sold in the United States in January was $201,100, according to the NAR. That means typical closing costs start at $6,000.
On a conforming loan, sellers can pay up to that 3%, and up to 6% if the buyer is using FHA financing, says Beaudoin. He says it is the most popular incentive today.
"There's definitely a trend for sellers to pay all or most of the closing costs for the buyers," he says. "It has a much bigger impact than dropping the price."
Why? Because the home price will be spread out over the life of the loan. Closing costs are due now.
"It's much easier to pay $30 dollars a month than it is to save $6,000," he says. (If you save $30 a month it would take 16.6 years, excluding interest, to amass $6,000.)
Home builders rate closing-cost assistance as more effective than adding optional items or reducing the sales price, says the NAHB.
Buy down the mortgage interest rate
Instead of knocking down the price, a seller can give money to the lender to go toward the buyer's interest payments for a certain amount of time, usually one to three years.
Here is a rough example from one of Phipps' clients:
Rather than taking $5,000 off the price, the seller gave it to the buyer's bank, where the buyer had a $200,000 loan. The bank used the $5,000 to buy 2 percentage points of the interest payments for the first 12 months and 1 percentage point the second 12 months.
This reduced the buyer's monthly mortgage payments from about $1,400 to $1,100 the first year and to $1,300 the second year. Given that the buyer had been paying $1,200 in rent previously, it eased the transition into the higher mortgage payments.
"We are using the buy downs for the first-time homeowners more than anything," Phipps says.
Pay toward the down payment
Lenders won't allow sellers to fund a down payment directly, but they do allow you to help via special down-payment assistance programs as long as those entities do not have a direct interest in the sale of the property. These include government programs, or nonprofit groups such as the Nehemiah Corporation of America, the Housing Action Resource Trust and Partners in Charity. (The U.S. Department of Housing and Urban Development maintains a list of down payment programs whose nonprofit status has been revoked.)
Nehemiah, the largest of the charitable groups, has provided down-payment assistance to more than 250,000 home buyers nationally in the past decade. This is how it works: Nehemiah contributes up to 6% of a home's price for a qualified buyer's down payment. The seller later reimburses Nehemiah to replenish its account for other buyers. The buyer can get help from Nehemiah only if the seller agrees to repay the program, so the seller wins, the buyer wins and Nehemiah gains funds to help future home buyers.
For FHA loans, which require only a 3% down payment, a seller could essentially offer 100% financing by working with a program such as Nehemiah, Beaudoin says.
Buy a warranty
This is a great incentive, say real-estate agents. It typically costs the seller just $400 to $500 and gives the buyer peace of mind that any mechanical or electrical repairs will be covered, minus a small deductible, in the first year. Sellers can add riders for other items, such as wells, spas or washer-dryers.
"Particularly for first-time home buyers, it really is a way for them to control or limit any unforeseen repairs," Phipps says.
Ask your real-estate agent what companies they like to work with. Also, the home warranties don't go into effect until after the sale, so you can prepare. A list of home-warranty companies by state is available here.
Prepay some first-year expenses
Buyers who might have exhausted their savings and entered into steep monthly payments may feel great relief knowing other costs have been prepaid for six months or a year. These could include:
- Homeowners association dues
- Taxes
- Utility payments
- Lawn maintenance costs
- Housekeeping payments.
Offer owner financing
In this scenario, the seller essentially offers to act as a bank and can set the terms of payment. This is clearly for those sellers who don't need the cash immediately. It is risky, agents say. "The other incentives are one-time fees; this is a long-term relationship," Phipps says.
Sellers should not only check the buyer's credit risk, but also make sure the buyer is financially invested in the house from the outset, through a decent down payment.
"You want to make sure you have good professional advice from your Realtor and your lawyer as to what that means, and what the recourse is if the mortgage isn't paid," Phipps says. "And a pre-approval letter for financing doesn't necessarily mean that you don't want to do due diligence."
Reward your broker
If you're in a hurry, you can always offer perks to your sales broker. This can include a higher commission or a gift. Human nature being what it is, this may work get the agent to move more buyers through the house. (Read more about people who chose to pay their agents extra.)
Nonfinancial incentives
There's no cap to what you can offer. Just make sure you are upfront and disclose transactions to your lender. Incentives can work as a psychological draw, say experts. But keep them fun and related to the house, Phipps says. For instance, he knows a seller seeking a Smart Car, which is hard to find, to offer with a solar house.
Advertise that the incentive will be offered for a limited time, and if it doesn't work, try something else. Steer clear of politically incorrect items that might offend prospective buyers, such as fur coats or energy-hogging cars.
Be wary of paying for inspections or repairs
It's possible to pay for these if need be, but it's not necessarily a good idea.
A home inspector should represent the buyer. If a buyer pays for the inspection, there's less chance someone could cry foul later. You don't want to be accused of being in cahoots with the inspector simply because you signed the check for his work, Phipps says.
Also, if the seller offers to pay for repairs as a condition of sale, the buyer's lender could require that the work be completed prior to funding, potentially stalling the sale.
"It creates a hiccup in the transaction," Beaudoin says. "Instead, what lenders will suggest is that the seller apply that money toward the closing costs. You can proceed and no work needs to be completed before the close."
Stay aboveboard
No matter what kind of incentive you ultimately offer, keep in mind that you'll need to be upfront about the details with all interested parties.
"Any kind of credit that the seller agrees to is ultimately subject to approval, or is limited, by the buyer's lender," says Kenneth Russo, a real-estate lawyer with LaPlante Sowa Goldman, in Rhode Island. Both parties must disclose any transactions made as part of the process.
Real-estate transactions are governed under the federal Real Estate Settlement Procedures Act. Violators can be subject to charges of felony fraud, says Russo.
Also, check with the state's business regulatory office to ensure that incentives are legal in your area. Spell out their value clearly, and have a lawyer review the agreement.
With those caveats in mind, offer incentives. They can send a strong message to buyers that you are willing to negotiate, says Gary Painter, an associate professor at the University of Southern California and research director of the Lusk Center for Real Estate.
"In some cases, buyers prefer incentives over lower prices," Painter says. Just calculate the exact value, "and make it clear."
Even when business was booming, succeeding in real estate required drive and commitment. Today, it requires a combination of guts and creativity that deserves a full-on salute. This year's 30 Under 30 winners, selected from more 400 applicants, were especially shrewd at overcoming barriers and seizing new opportunities. Quite a few notched higher sales in 2007 than in the year before and many had the smarts to zero in on growth areas like foreclosures and short sales. Some wisely diversified their businesses to include investment properties and insurance products. Choosing from the exceptional pool of candidates was difficult. We expect that these stellar young professionals will be pacesetters for years to come. 